Profile

Waiting for the Pitch

Richard "Richie" Freeman is one of the longest-tenured fund managers, overseeing the ClearBridge Aggressive Growth fund for 30 years now. Freeman takes a long-term view and makes big bets on his favorite picks.

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For Richard "Richie" Freeman, who later this month reaches his 30th anniversary running the
ClearBridge Aggressive Growth
fund (ticker: SHRAX), portfolio management is a very straightforward endeavor.

"Unless you are willing to get up on the table and brag how poorly you are doing, don't get on the table and brag how well you are doing, because every day is a new day and you have to stay grounded," says Freeman, who since 2009 has co-managed the fund with Evan Bauman, a protégé.

Of course, if Freeman ever cared to boast, he'd have a few points to make. For starters, he has lasted in an industry that isn't kind to longevity, and he has lasted in the same job for three decades, an eternity in asset management. Freeman is one of only a handful of money managers to run the same fund for that long. "The greatest motivator for myself is the fear of failure," he says.

Good long-term performance keeps failure at bay. Freeman, 60 years old, has compiled superb long-term numbers. Since the fund's inception in October 1983—when he launched it with his mentor and friend, Eliot Fried—the fund has averaged an annual return of 12.1%, versus 10.7% for the S&P 500. It has also beaten the S&P based on one-, three-, five-, 10- and 20-year returns, a testament to its consistency. There have been some volatile stretches, however, such as in 2008, when the fund lost 42%, trailing the Standard & Poor's 500 index by 5.4 percentage points.

Although the $8.1 billion fund has the word growth in its title, it definitely has a value bent. "We focus on the sustainability of cash flows over a long period of time and not overpaying for those cash flows," says Bauman, 38, who has been working with Freeman since 2000.

Adds Freeman: "Any manager who doesn't pay attention to value is a fool."

The focus on not overpaying for growth led to a concentrated portfolio in which the top 10 holdings now account for 51% of the fund. The fund holds 58 stocks. And they're held for a long time—sometimes even decades. The fund's annual turnover is 8%, versus an average of 70% for large-company growth funds, according to Morningstar. Freeman "has the ability to stay with these stocks forever," says Hersh Cohen, a ClearBridge colleague who has been a money manager at the firm since 1969. "He has conviction."

Freeman and Bauman also look for companies with strong balance sheets, innovative technology, and barriers to entry.

An example is their largest position,
Biogen IdecBIIB -2.173207914369121%Biogen Inc.U.S.: NasdaqUSD422.24
-9.38-2.173207914369121%
/Date(1427835600212-0500)/
Volume (Delayed 15m)
:
1697123AFTER HOURSUSD421.75
-0.490000000000009-0.11604774535809019%
Volume (Delayed 15m)
:
107190
P/E Ratio
33.96942880128721Market Cap
101264092849.48
Dividend Yield
N/ARev. per Employee
1284310More quote details and news »BIIBinYour ValueYour ChangeShort position
(BIIB), whose products include the blockbuster multiple-sclerosis drugs Avonex and Tysabri. Biogen, Freeman says, also has a promising pipeline and has spent its cash wisely, including buying out
Élan's
(ELN.Ireland) stake in Tysabri. "That's added about 10% to their earnings," he says. The holding dates to 1991, when Freeman initiated a position in Idec, which merged with Biogen in 2003.

Freeman says
FacebookFB -1.1779554059739168%Facebook Inc. Cl AU.S.: NasdaqUSD82.215
-0.98-1.1779554059739168%
/Date(1427835600246-0500)/
Volume (Delayed 15m)
:
19145238AFTER HOURSUSD82.2
-0.0150000000000006-0.01824484583105273%
Volume (Delayed 15m)
:
553513
P/E Ratio
73.40625Market Cap
232863799605.182
Dividend Yield
N/ARev. per Employee
1355150More quote details and news »FBinYour ValueYour ChangeShort position
(FB) is a good example of buying a "solid business with a great balance sheet when it was radically out of favor." They bought a good chunk of shares last fall when the stock was in the mid-$20s, versus about $50 now. "The challenge was proving they could monetize and grow their base, which they have done," Bauman says. Freeman expects Facebook to be a long-term holding as well: "Great companies have a habit of doing great things longer than people expect."

From the beginning, Freeman looked for companies on the cusp of new technologies and that were growing faster than the S&P 500. He found some in unexpected places. In the mid-1980s, Freeman was sitting in a restaurant with his wife. "I thought an alarm went off at a table," he recalls. "It turned out it was the first cellular telephone that I had ever seen." That led to profitable investments in companies such as LIN Broadcasting and Cellular Communications.

ClearBridge Aggressive Growth Fund (SHRAX)

Total Returns*

1-Yr

3-Yr

5-Yr

SHRAX

30.94%

21.00%

21.08%

S&P 500

17.49

14.89

15.27

% of

Top-10 Holdings

Ticker

Portfolio**

Biogen Idec

BIIB

10.19%

UnitedHealth Group

UNH

7.94

Anadarko Petroleum

APC

6.20

Amgen

AMGN

5.84

Comcast

CMCSK

5.56

Weatherford Intl

WFT

3.43

Forest Laboratories

FRX

3.19

Core Laboratories

CLB

3.07

SanDisk

SNDK

3.04

Cree

CREE

2.32

Total:

50.78%

*All returns are as of Oct. 9; three- and five-year returns are annualized. ** As of 8/31/2013. Sources: Morningstar; company reports

FREEMAN DESCRIBES THE past few years as "the most unloved bull market that I've ever invested" in, bemoaning investor skittishness. "This year, any time you have a 5% correction, the fear index moves up dramatically," he says.

Freeman developed his interest in stocks as a kid growing up in the Ocean Parkway section of Brooklyn in the 1950s and 1960s. His father, who worked in the garment industry, peddled mutual funds at night, and Freeman remembers watching the ticker tape after school at a local brokerage. He earned an undergraduate degree in accounting from Brooklyn College, followed by an M.B.A. from New York University.

Fortunately for Freeman and his investors, the good times in his career have far outweighed the bad. The scariest day of his career, he says, was Oct. 20, 1987, the day after Black Monday. Following an early rally, the Dow Jones Industrial Average plummeted. "I have never seen a day when you had halts on almost every one of the 30 Dow stocks," he says.

A diehard New York Mets fan, Freeman sees similarities between baseball and investing. "Your results are published every day, so your batting average is out there every day for everybody to see," he says.

A scouting report on Freeman might read something like this: a very good, experienced hitter who waits for his pitch.